Partial Outsourcing, Monitoring Cost, and Market Structure

18 Pages Posted: 30 Nov 2005

See all articles by Oz Shy

Oz Shy

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Rune Stenbacka

Hanken School of Economics

Abstract

We investigate firms' outsourcing decisions when production requires a large number of inputs. The novelty of our approach is that it provides a testable framework to characterize the equilibrium fraction of outsourced inputs. We demonstrate that intensified competition in a Cournot market for the final good typically enlarges the set of outsourced components relative to those produced in-house. The proportions of outsourced inputs are found to be strategic substitutes independently of whether firms compete with respect to quantities or prices in the market for the final good.

JEL Classification: D20, L22

Suggested Citation

Shy, Oz and Stenbacka, Rune, Partial Outsourcing, Monitoring Cost, and Market Structure. Canadian Journal of Economics, Vol. 38, No. 4, pp. 1173-1190, November 2005. Available at SSRN: https://ssrn.com/abstract=856632 or http://dx.doi.org/10.1111/j.0008-4085.2005.00320.x

Oz Shy (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

HOME PAGE: http://https://www.frbatlanta.org/research/economists/shy-oz.aspx

Rune Stenbacka

Hanken School of Economics ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland
+35 89 4313 3433 (Phone)
+35 89 4313 3382 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
24
Abstract Views
1,084
PlumX Metrics